Wal-Mart to edge in on local grocers

Discounter plans three supercenters in Baltimore area

February 03, 2007|By Andrea K. Walker | Andrea K. Walker,Sun Reporter

Baltimore-area supermarkets are bracing for new competition and could face pressure to lower prices after Wal-Mart Stores Inc. said this week it would open three grocery stores in the region.

The addition of so many stores at once means area shoppers could see some grocery costs fall across the region, retail consultants said, as existing supermarkets adapt to the world's largest retailer and its low-pricing power. The mammoth stores -- called supercenters -- essentially combine supermarkets with traditional Wal-Marts in buildings that are two to three times the size of normal grocers.

"When Wal-Mart starts selling groceries in an area, there's an impact," said David J. Urban, a professor of marketing at Virginia Commonwealth University. "Low prices, extended operating hours, location, convenience -- all of those put the other grocery competitors on notice. Wal-Mart has had fast growth in the grocery business -- it's a force to be reckoned with."

Wal-Mart's plans to open the stores by this fall mark its biggest supermarket expansion yet for the region.

The retailer, which currently has two full supermarkets in the Baltimore area, plans to close its store at Hunt Valley Town Centre to open a 305,000-square-foot supercenter nearby on York Road in Cockeysville. It is also building a supercenter on Washington Boulevard in Arbutus and one at Quarterfield Crossing shopping center in Glen Burnie.

"It's going to be major change for the Baltimore market like they've never seen before," said Mark Millman, president of Millman Search Group, an executive search firm in Owings Mills that specializes in the retail and shopping center industry.

The arrival of Trader Joe's, gourmet grocer Wegmans Food Markets Inc., and natural foods store Whole Foods Markets Inc. during the past few years has already shaken up the local grocery scene. And it left longtime institutions such as Giant Food and Safeway fighting to hold on to market share. Convenience stores, gas stations and drug stores that also sell food items have fragmented the market further.

Supermarkets responded by lowering prices, remodeling stores and expanding their offerings to include more prepared foods, specialty meats and organic products.

But now the stakes are about to get even higher.

These new Wal-Marts will offer a full supermarket and a range of other services such as oil changes, haircuts or manicures. The stores will also be open 24 hours a day.

Wal-Mart expanded its Aberdeen store into a supercenter in 2005. It has a similar store in Hanover near Arundel Mills mall. Across the state, Wal-Mart has nine full supermarkets.

Wal-Mart's arrival in Harford County quickly cut business at longtime grocery chain Klein's Family Markets. Executives at the family-owned stores said they felt pressure immediately because the supercenter sits between two Klein's locations in Riverside and Aberdeen.

"We were squarely in the cross hairs of Wal-Mart at both locations," said Howard Klein, general counsel and vice president of the grocer. "I'd be lying to say that we weren't concerned."

He said Klein's knew it couldn't beat Wal-Mart on price, but it could compete in other areas. The company remodeled the stores, improved the selection of produce, and put its employees through an intense customer-service training program. The grocer also made upgrades to the shopping center where each store was located.

Sales at Klein's fell 10 percent at one store and 15 percent at the other after Wal-Mart's expansion, Klein said.

"We went through a rough time when there was intense price competition at first," Klein said. "I think for the most part we've cycled through the down year."

Wal-Mart's business volume across the country gives it clout with manufacturers that in turn allows it to sell goods at cheaper prices.

Traditional grocery stores bring in about $150,000 in weekly sales while supercenters bring in about $600,000, according to William H. Marquard, author of WAL-SMART: What It Really Takes to Profit in a Wal-Mart World. Marquard once did strategic planning for Wal-Mart.

Wal-Mart has been a factor in the closing or bankruptcy of 27 supermarket chains since it opened its first grocery store in 1988, Marquard said. Jacksonville, Fla.-based Winn Dixie blamed competition from Wal-Mart as one of the reasons it declared bankruptcy in 2005.

Executives at supermarkets in Baltimore and Anne Arundel counties acknowledge that Wal-Mart will have an impact on the region's grocers. But they insist that they are treating its entry into the market like any other competitor.

"Whenever a retailer selling the same products we sell opens nearby, there is an impact on sales," said Jo Natale, a spokeswoman for Rochester, N.Y.-based Wegmans, which has a store in Hunt Valley. "To what extent this particular store will affect us, we can't say. We don't know. We don't plan to do anything differently."

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